1. "To draw the capital market line (CML), the Y variable is the expected rate of return and the X variable is the standard deviation." True or False?

a. True

b. False

2. Which of the following statements about common stock is false?

Stockholders exercise control over the company by voting for board members.

Common stockholders are the owners of for-profit corporations.

The preemptive right gives current stockholders the right to purchase any new shares issued by the company.

In the event of bankruptcy and liquidation, shareholders often receive nothing.

The claim of shareholders on the cash flows of the firm is limited to the dividends that they receive—i.e., they have no claim on a business’s residual earnings.